Equities attractive against macro backdrop

Macro-economic factors, such as the global shift towards pro-growth policy, mean the outlook for Australian equities is increasingly positive, according to T. Rowe Price.

Australia is already benefitting from growth-conducive policies, according to T. Rowe Price head of Australian equities Randal Jenneke, with the price of commodities such as coking coal and iron ore already up significantly this year.

“This is in direct contrast to the weakness in commodity prices seen in recent years, leading to a sharp contraction in the metals and mining sector, and it is not only export dollars that this improvement brings into the country, but also the flow through to employment and capital spending,” he said.

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Mr Jenneke said a continuation of this strength for the next six to twelve months, equating to “a potential USD$6‒8 billion windfall”, could also help in repairing the country’s fiscal position.

“With Australia on negative credit watch with ratings agencies, this kind of fiscal improvement is most welcome,” Mr Jenneke said.

Investment manager AllianceBernstein, however, cautioned the outlook for Australian equities is “in one key respect a continuation of last year’s”, noting that market volatility is set to persist into 2017, though added equities would still remain an attractive option for investors.

“Global macro factors will play a part, and among the most important of these from an Australian perspective will be uncertainty about the sustainability of strength in demand for commodities from China, and the impact this will have on the Australian resources industry,” the company said.

“Expectations of volatility notwithstanding, we continue to see some attractiveness in equities based on the level of dividend yields relative to the return on bonds and cash deposits.”